A company stock whose current price is $192 is expected to either increase to $242 or decrease to $185 over the next nine months with equal probability. Compute the price of a nine-month at-the-money European put option. Use the fact that the riskless rate is 3.3% per year with continuous compounding. Express your answer with two decimals.

A company stock whose current price is $192 is expected to either increase to $242 or decrease to $185 over the next nine months with equal probability. Compute the price of a nine-month at-the-money European put option. Use the fact that the riskless rate is 3.3% per year with continuous compounding. Express your answer with two decimals.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Give typing answer with explanation and conclusion J&J stock price is currently trading at $100. Over each of the next two three-month periods it is expected to go up by 8% or down by 7%. The risk-free interest rate is 5% per annum with continuous compounding. What is the value of the first 3-month if it is expected to down by 7% European call option with a strike price of $95? Compute the current price if use American call option with a strike price of $95. (draw the tree figure for stock movement).
The current price of a non-dividend paying stock is $100. Every three months, it is expected to go up or down by 9% or 5%, respectively. The risk-free rate is 4% per year with continuous compounding. Compute the price of a European call option with strike price $98 and maturity six months written on the stock.
A stock price is currently $43 . It is known that at the end of one month it will be either $45 or $41 . The risk-free interest rate is 7% per annum with continuous compounding. What is the value of a one-month European call option with a strike price of $42 ?
The share price of your favourite company is currently traded at a price of £80 and interest is compounded continuously at rate 3.7% per year. Assume that the share evolves according to a discrete time LogNormal process with time measured in years, 0.15 and volatility o = 0.24 drift µ . You decide to buy a European call option with a strike price of £84 and an expiration date of two years from now. What is the no-arbitrage price for this option? State your answer to the nearest pence. Do not enter the pound sign. =
Am. 103.
A stock price is currently $60. You predict that at the end of 6 months stock price will increase or decrease by 20%. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a 6-month European put option with a strike price of $60?
The risk-free rate is 8% per annum with continuous compounding. The price of stock CPU is $30. CPU currently does not pay a dividend. You use a two-step tree to price a European put on CPU with a strike price of $32. The option expires in six months. If you estimate that u=1.1 and d=0.9, what is the price of your put? A.$1.50 B.$2.24 C.$1.88 D.$2.56
The spot price of a non-dividend paying stock is recorded as ₺100 at the close of the day. You estimate that this price is equally likely to go up by 11.1% or go down by 10% every two months and observe that the continuously compounded annual risk-free rate is 20% per year across all maturities. Use a multistep binomial tree together with the risk-neutral valuation approach to compute the theoretical price of a European put option written on this stock with a strike price of ₺80 and exactly six months until expiration
A European put option written on a non- dividend paying stock that is currently worth ₺100 in the stock market has a strike price of ₺100 and exactly five months left until its expiration date. If the continuously compounded annual risk-free rate is observed as 20% per year across all maturities and the put option is currently priced at ₺3.20 in the option market, what should be the theoretical price of a European call option written on the same stock that has the same strike price and expiration date as the put option described?
The current market share price of Belta Airlines plc is $20. Every month, the stock price is expected either to increase by a multiplicative factor u = 1.1, or decrease by d = 0.91. The relevant annual continuously compounded risk-free rate of interest is 6%. 2. (a) What, according to the binomial option pricing model, will be the price of a 3-month European put option on a share of Belta stock, with a strike price of £19.50? (b) (c) What would the price of the put option was American style? If your answers to parts (a) and (b) differ, why do they differ?
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Suppose the stock price is currently $75. For the next six months there is 7.5% probability that the stock will appreciate 8% with 4% annualized drift. The risk-free rate is 1.53% per year with continuous compounding. The dividend yield is 1 p.a.%. Value the following option using binomial tress and 12-time steps. a.) What is the value of a six-month European put option with a strike price of $86. b.) What is the value of a six-month American put option with a strike price of $70. c.) What is the value of a six-month European call option with a strike price of $86. d.) What is the value of a six-month European put option with a strike price of $70. e.) Estimate how high the minimum strike price must be for it to be optimal to exercise the put option immediately.

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